The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

5 February 2012

Interview with Barrie Cassidy

Insiders, ABC TV

SUBJECTS: Banking reforms; interest rates; car industry; high dollar; leadership

CASSIDY:

Good morning, welcome.

TREASURER:

Good morning, Barrie.

CASSIDY:

Just on those exit fees, are you claiming that these changes are giving small banks and credit unions a bigger share of the home mortgage market?

TREASURER:

Too right I am Barrie. There's been something like a $10 billion boost to lending from the small lenders, the smaller banks, the building societies, and the credit unions and that flows directly from the competition reforms that the Government has put in place, including and most importantly, the abolition of mortgage exit fees. So much so that we would now expect to see almost 1 million Australians with loans free of exit fees by the end of the year, and why is that important? Well, it's important because if people are unhappy with their financial institution they can walk down the road and get a better deal because there are better deals out there from a variety of lenders and in particular from some of the credit unions.

So what we've been absolutely determined to do over the past year is to get a much more competitive framework in place. We know that the banks, the four major banks have a lot of power, but there are a lot of competitors out there that can deliver a better deal and that's what we see in the data which has been produced today. I'm particularly proud of these reforms, Barrie.

CASSIDY:

There was some other data though yesterday, an analysis by the Weekend Australian had the opposite view. They said the big four have grown their mortgage books by $175 billion in the past four years.

TREASURER:

Yes I read that too and it just doesn't really match up with the facts. A lot of what you read from time to time in this area doesn't match up with the facts. We have powerful vested interests out there that are pushing their line all the time. Certainly the big four have a large market share but these competition reforms are driving the capacity of the smaller lenders to get in there and to provide some vigorous competition and to give consumers a choice so that if they're unhappy with one of the big banks they can walk down the road and get a better deal. But they're out there all the time pushing their lines in the media. They're big, they're powerful but I tell you what, there is some competition out there and I would urge all of your viewers to look around and have a look at the deals that are available if they're not happy with the decisions that are taken by their financial institutions, whether it goes to interest rate pass-through or whether it goes to what they're doing with their staffing or whatever it is.

CASSIDY:

Well, it might be firmly on the agenda as of this week if the Reserve Bank cuts interest rates. You get a real sense this time around that perhaps none of the big banks will pass it on.

TREASURER:

Well, certainly they're pushing a pretty tough line behind the scenes on that very question. But can I just make this point Barrie, we've got the cash rate at 4.25 per cent. When we came to office it was 6.75 per cent. If you look at the last two interest rate cuts, somebody on a $300,000 mortgage is paying $3,000 a year less than they were paying when we came to government. So the fact is that the outlook out there is pretty bright. The fact is the economy is going along strongly but we've also seen rates come down, two rate cuts in a row, and there are good deals out there in the market.

CASSIDY:

Well, Gail Kelly from Westpac says the funding costs increased quite markedly in the second half of last year. If you accept that, then what you're asking them to do is to absorb the extra costs and effectively reduce their profit margins.

TREASURER:

Well, let's put this into perspective. They are hugely profitable and their net interest margins are back to where they were prior to the global financial crisis. What Gail Kelly is saying when it comes to staffing or when it comes to whether or not they will pass through a full rate cut, what she is saying is that the banks are determined to keep that high profitability in place. They have a return on equity which is unlike that of just about any of their peers elsewhere in the world but the banks are making it very clear that they're prepared, perhaps to do a range of things, to keep that huge profitability in place. What I say is – and this is the reason we put the competition changes in place – is that their customers will be very angry if they don't pass through in full and I say to their customers have a look around, you've got a greater capacity to shop around now than you've ever had before.

CASSIDY:

But on this high profitability, given the experiences of banks around the world, wouldn't Australians say that's a good thing that Australia's banks do maintain this profitability?

TREASURER:

I think it is a good thing that our banks are highly profitable but when we look around the world and look at their return on equity, I'm not saying they should become paupers, what they are saying is they should have a right, irrespective of any particular market condition, to maintain forever huge profitability. Now I think there's a lot of other businesses out there who would look at that sort of approach of the banks and they'd be pretty puzzled because the market place isn't working like that for them.

CASSIDY:

Well, in a lot of places it's the high dollar that's of greater concern. Why is it that the car industry seems to get a disproportionate share of government subsidies under this high dollar situation? This idea of co-investment seems to belong exclusively to the Government and the car industry?

TREASURER:

I don't accept that for a minute, Barrie. I mean, there are challenges in our strong economy flowing from a higher dollar. The stresses and strains of a higher dollar are being felt across many industries: the auto industry, the tourism industry, the education export sector and so on. And in various ways the Government is addressing those stresses and strains. But we, for a long time in this country, under both political parties, have had a commitment to ensure that we have a strong auto industry here; that it is highly competitive and productive and a consequence of that has been co-investment. The co-investment that we make in this country is quite modest compared to investments made elsewhere in the world and autos have a particular challenge at the moment because global demand is down and of course here we have a higher dollar.

We think it's important to maintain an auto industry in this country and that's why we're looking at co-investment and we've been working with the companies. But when it comes to the other sectors, the very purpose of this government is to make sure that we create prosperity and we spread opportunity. We realise that the benefits coming from the mining boom are great but also it brings with it a higher dollar and that's why our whole central policy focus has been to put in place a range of policies which spread the benefit of that boom around the country and most particularly to small business, which is why we're looking at a very substantial tax cut for small business from 1 July this year with money that comes from the resource rent tax.

So in various sectors we are responding to the stresses and strains of the higher dollar but the one thing we know Barrie, about the Australian economy, is that its fundamental strengths are greater than any other developed economy in the world. And if we can respond to these stresses and strains with logical policy over time, then this country can continue to do really well across all of its sectors. For example, Barrie, last week I was up in Cairns. It's been hit for six over the last half dozen years by a whole range of factors in its tourist industry. That tourist industry is gradually getting back on its feet, despite the high dollar. We're seeing a surge of Chinese tourists going through there. So there are a variety of responses in a variety of sectors that the government is working on to deal with the stresses and strains of a higher dollar.

CASSIDY:

Well, maybe you can sell that message if three months from now you do forecast a surplus but when the surplus forecast is $1.5 billion it doesn't give you much room to move. Even in that short time frame, surely you're still hostage to what might happen overseas.

TREASURER:

Well, Barrie, the fact is that I'm an optimist about the Australian economy. We've got challenges in the European economy. They will go into recession. I'm very hopeful about the US economy. The job numbers out of the United States last Friday were very encouraging and I think they will be a boost to global confidence. Our revenues have been written down because of the global financial crisis and the global recession by $140 billion and that's been pretty tough. But we're determined to come back to surplus because we've got growth at trend, we've got this huge investment pipeline coming through, $455 billion. So we think in that environment, given what we've seen in Europe, it is very important to come back to surplus in 2012-13 but, as I've indicated in the mid-year review at the end of last year, that brings with it challenges. But there are great opportunities as we demonstrate fiscal discipline to the rest of the world particularly in the environment we're in at the moment.

CASSIDY:

Do you think you can get a run on the budget if these leadership tensions are still active by May?

TREASURER:

Well, the fact is that a lot of the media coverage at the moment is simply bizarre, whether it's coverage of parts of the economy or whether it's coverage of the internals in the Labor Party. I think the community has had just a gutful of so much of the commentary and speculation that's out there, most of it is just a huge beat-up. Sure, there are one or two individuals out there who are disgruntled, they are feeding some of these stories, but the great bulk of the coverage that I read is just completely divorced from reality. But that's the media environment we live in at the moment.

CASSIDY:

The Foreign Minister of this country, behind the scenes, is mounting a challenge for the leadership. That is hardly a beat up.

TREASURER:

Well, let me say this, I take the Foreign Minister at his word. He has spoken on this and I take him at his word.

CASSIDY:

No you don't. No you don't.

TREASURER:

I certainly do Barrie, and I can tell you this, that there is a very strong view in our caucus that a lot of this speculation in the media is simply wrong. Our leader, our Prime Minister, has the strong support of our caucus. She is someone who is getting things done. That is the overwhelming view of our caucus and I think the overwhelming view of people in the community is they want us to get on with dealing with those big tasks that I was talking about before, of creating prosperity, spreading opportunity around our country, and maximising all of the opportunities which will flow from growth in our region over the next few years.

CASSIDY:

Well, I'd suggest that's a head in the sand view because you must know there has to be some sort of a showdown on in this in the next few months otherwise it will never go away.

TREASURER:

I've been reading the stories Barrie, and I just think most of them are just completely inaccurate. Now these stories were run like this, Barrie, at the end of last year, you might recall. We had a spate of them that went through November and December. Now we're getting them again, but the fact is, Barrie, our Prime Minister has the strong support of our caucus. She's a tough leader, she's a person of integrity, she's a person of great strength, she's a person of great vision.

Let's just run through what she's got done: Carbon pricing, the pricing of carbon pollution, for example, an enormous reform to our country – she got it done. The mining tax, the resource rent tax, passed through the House of Representatives and going to the Senate, absolutely key to spreading the opportunity from the resources boom – she got it done, Barrie. We've got the structural separation of Telstra, something that's been on the agenda for 25 years – she got it done. And when it comes to health reform and education reform she's getting it done, Barrie, and the overwhelming view in our caucus is she deserves their strong support.

CASSIDY:

Can I just clear one thing up, and it has been reported in several places. It's hypothetical, I'll admit that, but if Kevin Rudd was to become Prime Minister, would you serve on his frontbench?

TREASURER:

Well, Barrie I don't accept the assumptions on which that question is based and I certainly don't intend to respond to hypotheticals like that. I'm a loyal member of the Labor Party. I love the Labor Party and I love my country and what I want my country to do is to prosper in the 21st century, and this Government's got a broad visionary agenda out there, much of it coming through in the middle of this year with some very big tax reforms, the tripling of the tax-free threshold, the big tax cuts for small business, all of the reforms to the pension system and so on, where our political opponents want to destroy all that. For God sake, our political opponents want to give Gina Rinehart and Clive Palmer a tax cut but they won't sign up to a disability insurance scheme. That's how weak and pathetic the Opposition is, Barrie.

CASSIDY:

The question may be hypothetical but it's still straight forward and you're not prepared to commit to working on the frontbench if Kevin Rudd was...

TREASURER:

No because I don't accept, Barrie...

CASSIDY:

You don't accept that he'll ever be Prime Minister again?

TREASURER:

I don't accept any of the assumptions behind that question whatsoever.

CASSIDY:

Okay. Thanks for your time this morning.

TREASURER:

Thank you.